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35 Pages·2009·0.89 MB·English

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ISSN : 1875-418X Securing the Peace: The Battle over

Issue : Vol. 7 - issue 1 Ethnicity and Energy in Modern Iraq
Published : Apr il 2009
by J. Dargin

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Securing the Peace:
The Battle over Ethnicity and Energy in Modern Iraq

by Justin Dargin /Dubai Initiative-Harvard University
Contents 
Glossary of Terms........................................................................................................................................iii
I. Introduction...........................................................................................................................................1
A. Overview of Northern Iraq (Kurdistan Region)................................................................................3
B. Brief History of Iraqi Oil Policy...................................................................................................3
II. Analysis of the Current Dispute............................................................................................................5
A. The KRG Shows its Autonomy........................................................................................................5
B. The Kirkuk Flashpoint......................................................................................................................7
C. Baghdad Reacts.................................................................................................................................9
D. Export Potential..............................................................................................................................11
III. The Issue of Regional Licenses......................................................................................................13
A. Constitutional Clarity......................................................................................................................13
B. Differences in Constitutional Construction between the Federal and Regional Government........14
C. Conflict of Laws.............................................................................................................................16
D. Enumerated Powers........................................................................................................................17
E. Who has Jurisdiction?.....................................................................................................................18
1. The Dispute over Revenue Sharing: Equality versus Equity......................................................19
IV. State of the Current Iraqi Draft Petroleum Law..............................................................................20
A. Features of the Draft Code..............................................................................................................21
B. Potential problems..........................................................................................................................22
V. Conclusion and Recommendation......................................................................................................24
A. Proposed Constitutional Amendments............................................................................................27
B. The Political Compromise: Will the Stakeholders Agree?.............................................................27
Appendix One-Map of Iraq Oil Infrastructure............................................................................................31
Figures
Figure One-Map of Ethnic/Sectarian Makeup of Iraq….............................................................................6
Figure Two-Map of Iraqi Oil Infrastructure………………………………………………………………10
Kurdish Energy Autonomy under the Iraqi Constitution | Glossary of Terms  i
Glossary of Terms 

B/P= Barrels per Day

FDI=Foreign Direct Investment

FOGC= Federal Oil and Gas Council

GAO= Government Accountability Office

INOC=Iraqi National Oil Company

IOC= International Oil Company

IPC=Iraqi Petroleum Company

KRG = Kurdistan Regional Government

PSA= Production Sharing Agreement
Kurdish Energy Autonomy under the Iraqi Constitution | Glossary of Terms  ii
“There is something very sinister to my mind in this Mesopotamian entanglement,"   
Winston Churchill wrote his Prime Minister, David Lloyd George, in August 1920.1

•
I. Introduction  

T
his article examines the legal and political impediments to the Kurdish Regional
Government’s (KRG) exploration and production contracts, which the central
government in Baghdad has refused to recognize. The newly established Iraqi
national constitution significantly opened as many petroleum-control questions as it resolved.
Negotiated in 2005, the constitution not only separated branches of government, but established
Federalism as its lodestar. However, faced with unresolved issues over regional and national
control over petroleum resources, International Oil Companies (IOCs) function in an ambiguous
legal environment that fails to clearly distinguish between federal and regional powers
Article 112(1) of the constitution grants the central government a conditional right to
“…undertake management of oil and gas extracted from present oil and gas fields…” (emphasis
mine). Reflective of Iraq’s commitment to federalism, the right to manage oil fields is shared by
the central government, the producing governorates and the regional governments. Article 112(1)
could, therefore, be construed to mean that the central government has no right to exercise
authority over nonproducing fields and future fields: rights not explicitly granted to the federal
government may be residual rights held by the regional authorities. The constitution declares that

1 Quote taken from, Joe Klein, Even Churchill Couldn’t Figure Out Iraq, Time (July 30, 2006)  
• Justin Dargin is a research fellow at the Dubai Initiative/Harvard University. He specializes in Energy Policy in the 
Persian (Arabian) Gulf region. Mr. Dargin speaks fluent Arabic and traveled to Northern Iraq for background 
research. He may be reached for comments at [email protected]
Kurdish Energy Autonomy under the Iraqi Constitution | IntroductionTP(PT  1
Iraq is a single, sovereign nation with a federal policy that all regions must respect, and declares
that2 the rights of Kurdistan must receive special recognition.3
This paper will analyze the Iraqi constitution and the controlling legislation against the
current oil production and exploration policies of the Kurdish Regional Government (KRG), to
determine which governmental authority has the right to sign contracts. The central proposition
of this paper holds that Article 112(1) should be clarified to grant the federal government
oversight of all oil and gas fields, whether present or future, whether producing or nonproducing,
under a Federal Oil and Gas Council (FOGC) –as stated in Art. 5(c) of the Draft Hydrocarbon
Law.4 A FOGC would allow each constitutionally-created region licensing authority in its oil
and gas production as it deems necessary, and grant the federal authority the ability to ensure that
petroleum contracts are harmonious throughout the country. Since a federal oversight board,
incorporated as the FOGC, already has the preliminary political approval of the disparate
ethnic/sectarian groups5, it could form the basis of reconciliation in Iraq’s heavily disputed
energy sector. A firm constitutional and a reliable legislative hydrocarbon regime, based on the
rule of law, are necessary to adequately rebuild the country and soothe sectarian tension.
Section 1 gives a brief overview of the Kurdistan region and the history of Iraqi national oil
policy. Section 2 analyzes the current dispute between the Kurdish regional authorities and the
federal government, and delves into the export ability of the Northern region of Iraq and its
geopolitical relations. Section 3 discusses the legitimacy of regional licenses, and illustrates how
that the current energy dispute is rooted in the initial negotiations of the constitution, when the
drive for compromise resulted in later constitutional ambiguity. Section 4 considers the features
of the Draft Iraqi Hydrocarbon Law, and its shortcomings. Section 5 concludes with several
constitutional and legislative recommendations that will forge agreement among all major
stakeholders in Iraq as a prelude to a viable hydrocarbon regime.

2 Iraq Const. §1 Art. 1. The English translation of the original, Arabic text, full  text of the constitution is available at  
<http://www.uniraq.org/documents/iraqi_constitution.pdf> 
3 Iraq Const. §5 Art. 117(1).  
4 Draft Oil and Gas Law, Full Text Available a <http://www.revenuewatch.org/news/oil_law_english_20070306.pdf> 
5 See section V below, Conclusion and Recommendation for a fuller analysis of the political positions of the ethnic/sectarian 
groups.  
Kurdish Energy Autonomy under the Iraqi Constitution | IntroductionTP(PT  2
A. Overview of Northern Iraq (Kurdistan Region)

Kurdistan, located on the Eastern flanks of the Middle East, is a land of antiquity containing
a diverse and distinctive people. However widely feared in other contexts, Alexander the Great
met his military misfortune here near Erbil, a Kurdish city in Northern Iraq, which became the
last point for his epic conquests. Kurdistan, which literally been a focal point for military clashes
since Roman times, is perhaps the largest ethic-nation on Earth that lacks political self-
determination.
With carnage in Iraq confronting world television viewers daily, many people do not know
that the Northern portion of the country-referred to in the Iraqi Constitution as the Kurdistan
Region- is not only a relative oasis of peace, but an active player in the fierce global competition
for Foreign Direct Investment (FDI) to develop its natural resources.

B. Brief History of Iraqi Oil Policy

Repression does not make the Kurds unique among the ethnic-sectarian groups in Iraq.
Kurdish history offers a legacy of endurance under tyrannical regimes. For example, the Kurds
had been a constant irritant in the sides of the Ottoman Sultan and the Persian Shah.6 When
World War I resulted in the Ottoman Empire’s dismemberment, the newly created states of
Turkey and Iraq struggled to control Kurdish territories. But, oil politics were pivotal to the
Kurdish dynamic even in the early part of the 20th century, as shown by the fact that the British-
controlled Turkish Petroleum Company (TPC) retained concessions in the Northern Iraqi city of
Mosul.
After WWI, the TPC became the Iraq Petroleum Company (IPC), a commercial entity that
not only remained in British hands, but that stubbornly managed to hold its Mosul concessions.
Turkey and France obtained equity holdings, but Iraq received the Mosul area and its Kurdish

6 David McDowall, A Modern History of the Kurds (1997)   
Kurdish Energy Autonomy under the Iraqi Constitution | IntroductionTP(PT  3
population.7
In 1961, Iraq expropriated ninety-nine percent of the area in which IPC had a concession, and
restricted the company to those production areas that it actively utilized. By 1972, the Iraqi
government, which sought to enhance its role in oil extraction by full nationalization, created the
Iraq National Oil Company (INOC). After the 1960s, Northern Iraq experienced numerous
Kurdish uprisings, and harsh governmental reprisals.
Under Saddam’s reign, Iraqi 
Saddam’s Baathist regime implemented excessively
national oil policy was heavily 
bloody preventive measures in the early 1990s, which
centralized. 
led the US led Coalition forces in Desert Shield/ Desert
Storm to create a Northern enclave that was totally off
limits to Iraqi military forces.8 One should not surmise, however, that Iraqi-Kurdish relations
suffered solely because of the crimes of Saddam Hussein; the Kurds had historically exhibited a
rugged independence characteristic of most mountain peoples.

7 The partners in the IPC were British Petroleum (23.75%), Shell (23.75%), Total (23.75%), Exxon (11.875%), Mobil (11.875%) 
and Partex (5%). Iraq Oil Briefing, Greg Croft Inc. Available at <http://www.gregcroft.com/iraq.ivnu> 
8 Id.  
Kurdish Energy Autonomy under the Iraqi Constitution | IntroductionTP(PT  4
II. Analysis of the Current Dispute

A. The KRG Shows its Autonomy

I
n the fourth quarter 2007, the KRG, which increased the rate at which it closed oil
agreements, signed four new contracts for an estimated $500 million (U.S.) in
investment.9 A November 7, 2007 agreement illustrated the KRG’s interest in
signing weightier contracts with larger oil and gas companies. A subsidiary of MOL Hungarian
Oil and Gas became a signing partner to two production sharing contracts, and India’s largest
private oil company, Reliance energy, and Austria’s OMV, signed two additional production
sharing agreements (PSAs).10 The KRG awarded four “strategic blocks” to the Kurdistan
Exploration and Production Company, and granted the undeveloped Khurmala oil field to the
Kurdistan National Oil Company.
These deals closed in the wake of five previous oil and gas PSAs the KRG signed in early
2007.11 In total, the KRG has twenty-eight open or pending production and exploration
contracts,12 most signed with smaller, more risk-taking firms, because the larger IOCs fear
censure from the central government if they participate in the KRG’s fast moving auction. Even
these relatively minor oil and gas deals drew the ire of the Iraq’s Oil Ministry, which, in
September 2007, declared that these deals were illegal and void of legal substance.

9 Iraq’s Kurdish Region Approves Four New Oil Deals, Reuters U.K (Oct. 3rd, 2007)  
10 Id.  
11 Id.  
12 Id.  
Kurdish Energy Autonomy under the Iraqi Constitution | Analysis of the Current Dispute  5
The KRG, which flatly rejected the central government’s constraints, stated that it not
only had legal authority, but that it would continue current negotiations. The KRG signed a PSA
with a subsidiary of Toronto’s Heritage Oil for its Miran block, and with the French oil and gas
company Perenco for its Sindi/Amedi block.13 Frustrated by the slow pace of the progress of the
nationwide draft oil and gas law in the Iraqi parliament, the KRG sought increased production
from the current levels of several hundred thousand barrels per day (b/d) to a million barrels p/d,
within approximately a five-year window.
Because the KRG Oil
and Gas Council also decided
to increase the region’s
refinery capacity, the KRG,
in 2007, approved plans to
construct two 20,000 b/d
refineries, worth a total of
$300 million. Heritage Oil
will construct one refinery in
the vicinity of the Miran
block area, while Addax
Figure 1: Map of Sectarian/Ethnic Makeup of Iraq 
petroleum and Turkish
Source: RadioFree Europe/RadioLiberty  
partner Genel Enerji will
build another refinery in the
Taq Taq oilfield area.

13 See the Appendix for a detailed look at the location of Iraqi oil infrastructure and oil deposits.  
Kurdish Energy Autonomy under the Iraqi Constitution | Analysis of the Current Dispute  6